Brokers’ take: RHB upgrades UOB to ‘buy’, views valuations as compelling
Patricia Karunungan
RHB Research on Monday (Oct 31) upgraded its call on UOB to “buy” from “neutral” following the bank’s release of record Q3 results last Friday.
The research house raised its earnings estimates for FY2022 by 10 per cent, and a further 3 to 4 per cent for FY2023.
This comes as RHB analysts revise their net interest margin (NIM) revisions upwards, with lower expected provisions for FY2022 after the bank’s earnings for the first nine months of the year exceeded RHB and consensus expectations.
This has resulted in a higher target price of S$31.40 as compared with S$29.30 previously, as the new target incorporates refreshed generalised gain margin (GGM) assumptions with a 4 per cent ESG (environmental, social and corporate governance) premium.
Looking ahead, RHB’s research team said it is optimistic that UOB will be able to “ride through the current challenges” in light of its satisfactory 9M FY2022 earnings and strong NIM expansion.
It is projecting the bank’s NIM to expand even further to remain above 2 per cent in Q4 FY2022, in tandem with the rise in the federal funds rate (FFR), or the interest that banks charge each other.
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Similarly, Maybank Securities foresees UOB’s NIM to continue expanding and on Monday raised its target price to S$33.77.
The brokerage firm maintained its “buy” call on UOB, citing confidence in the bank’s capacity to “offer certainty amidst uncertain macro conditions”.
While RHB’s research team said it expects UOB’s planned acquisition of Citi’s retail portfolio to lift its NIM, it predicts NIM expansion to moderate in the quarters ahead even as the FFR continues to rise in 2023.
UOB’s loan growth is also expected to moderate, in light of a challenging global economic outlook and slow growth in key markets.
“Still, a tactical move to accumulate fixed deposits earlier in the rate upcycle would help sustain NIM,” it added.
Considering that the bank’s non-performing loans (NPLs) fell 10 per cent quarter on quarter, the research team views NPL coverage as “comfortable” at 98 per cent.
It views the stock’s current valuation at 1.03 times price-to-book value as compelling against the bank’s projected FY2023 return on equity projection of above 11 per cent.
Shares of UOB opened at S$28.16 on Monday, up 4.1 per cent or S$1.11.
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